Weighted Average Cost of Retail Gas (WACORG) highlights pricing effects in the US gas value chain: Do we need wellhead price-floor regulation to bail out the unconventional gas industry?

Weijermars, Ruud

doi:10.1016/j.enpol.2011.07.028

Cited by 11 publications

(6 citation statements)

References 16 publications

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“…Only when governments provide guarantees against project failure, foreign companies may be prepared to refrain from charging the risk premium. This would apply when price floor guarantees protect companies against future revenue dips due to price volatility of natural gas (Weijermars 2010a(Weijermars , 2011b. Project risk is reduced to zero for the service providing company in the case of service contract agreements for field development (see ''Service Contract Agreement (SCA)'' section Appendix 2).…”

Section: Regulation Versus Taxationmentioning

confidence: 98%

“…Such excessive profits would leave the country as cash transfers for the benefit of the corporate ROCE and the company shareholders, but deprives future generations from the benefits of natural resource wealth in the producing country. Examples of price floor regulation of natural gas wellhead prices have been discussed in Weijermars (2010aWeijermars ( , 2011b.…”

Section: Regulation Versus Taxationmentioning

confidence: 98%

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Natural Resource Wealth Optimization: A Review of Fiscal Regimes and Equitable Agreements for Petroleum and Mineral Extraction Projects

Weijermars

2015

Nat Resour Res

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This review highlights the challenges of fiscal system optimization considering both the host government and extraction company perspectives. Countries around the world face an arduous task in determining the optimal fiscal system to maximize the capture of economic rents of natural resource extraction activities. The extraction industry is equally challenged to meet global commodity demand because the capital investments required for developing new hydrocarbon fields and ore mines are on the rise, while tax takes on extraction activities tend to rise too in many frontier jurisdictions. Normal profit must remain for the extraction companies, and returns must be large enough to replace for resource depletion. Companies use the benefits of resources produced in one country to finance capital investments for future field development in another country. One viewpoint is that profits are expatriated to the detriment of the host country and to the benefit of another country or the world supply chain as a whole. Another viewpoint is that all resource holders benefit because a foreign entity always starts in a new resource holding nation by investing in the development of an oil field or solid mineral mine using the profits from previous projects in other countries. A key question is What is a fair taxation regime for natural resource extraction in a particular geological setting and a given geographical location, taking into account subsurface uncertainty about the quality and volume of the resource, infrastructure needs and proximity to the worldÕs major markets and trade centers? Tax distortion could go both ways: either incentivize, attract and stimulate or des-incentivize, repel and deter resource development. Additional factors to consider are external uncertainties such as political and fiscal stability, sovereign risk and even local weather conditions (mostly in offshore and Arctic petroleum operations). Governments must tax the upstream rents of petroleum and mineral resources, but not to the level that suppresses extraction activities. All stakeholders want at least an equitable share of the profits. Defining what is equitable is a matter of intensive negotiations, renegotiation of prior agreements and sometimes litigation and international arbitration. Several case studies, covering both petroleum and solid mineral extraction projects, are included to highlight the key points involved in fiscal policies designed to optimize the utility of geological resource endowments. For example, the offshore tax regime employed in the US pivots the trade-offs between fiscal incentives and long-term resource supply to ensure energy security. This review concludes with a call for further research.

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Section: Regulation Versus Taxationmentioning

confidence: 98%

Section: Regulation Versus Taxationmentioning

confidence: 98%

Natural Resource Wealth Optimization: A Review of Fiscal Regimes and Equitable Agreements for Petroleum and Mineral Extraction Projects

Weijermars

2015

Nat Resour Res

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“…Increasingly there are reports of delayed investments in drilling of new wells for exactly this reason. This development has prompted some to support the reintroduction of a wellhead price-floor, which was abolished in 1989 with the Wellhead Decontrol Act (Weijermars, 2011). However, it appears that the market shall correct the existing mismatch between supply and demand, with for instance BP reporting a write-off of $2.1 billion on shale gas acreage because of lower natural gas prices.1…”

Section: Market and Economic Impactsmentioning

confidence: 99%

Energy (in)security in Poland the case of shale gas

2013

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The large scale extraction of natural gas from shale rock layers in North America using hydraulic fracturing, or "fracking", has prompted geologists, economists and politicians in various parts of the world to ask whether there are new reserves of this precious resource to be found under their soils. It has also raised a host of questions about the potential environmental impacts of extracting it. Drawing on research on both sides of the Atlantic, this paper assesses the most pressing issues for research and policy makers related to shale gas extraction. The paper first provides a survey of environmental and economic issues related to shale gas. It then turns to a case study of Poland, whose policy makers have been among the most fervent proponents of shale gas development in the European Union. We examine the status of shale gas extraction in that country and what the barriers are to overcome before commercial extraction can in fact take place, if at all. shale gas | energy security | Poland | fracking | natural gas | energy policy

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“…Regulators, or governments of countries, generally determine the maximum limit of the zone of reasonableness (the IRR) based on the cost of capital or the WACC used to fund related publicinfrastructure projects (Tapia, 2010;Weijermars, 2011;Federal Energy Regulatory Commission, 1999;Hunt, 2014). Therefore, when determining rates or prices of public infrastructure, discount rates used in free cash flow (FCF) are equal to WACCs.…”

Section: A 100% Business Entity Investment Scenariomentioning

confidence: 99%

The Impacts of Financing Investment Scenarios on Piped-Natural Gas Prices (GPs) for Households in Indonesia

Bawono

Kusrini²

2017

IJTech

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The objective of this study was to compare the impacts of financing investment scenarios on piped-natural GPs for households in Indonesia using government, business entity, and mixed investment scenarios. Simulations of cash flow were used for a case study of domestic GPs in City X in Indonesia, which originally used only one investment scheme. The GPs is calculated using the cash flow (CF) method. With the cash flow, GPs is calculated based on the sum of investment costs (Capital Expenditure), operating and maintenance costs (O & M), gas purchase costs, administrative costs (A), tax (t), and margin (m) divided by gas volume. A sensitivity test was performed using the models to observe the effects of changes to each component of each variable regarding price calculations for natural gas. The government divided the type of household into two, one class consisting of simple house and small house and the second group consists of luxury homes, apartments, and condominiums. For 100% government investment scenarios, prices were formulated using management fee systems. For 100% business entity investment scenarios, prices were formulated with a method in which an internal rate of return (IRR) equaled a weighted average cost of capital (WACC). For mixed government and business entity investment scenarios, prices were derived by modifying 100% government investment scenarios calculations. A study of setting piped-natural GPs for households that are equitable, fair, transparent, and able to meet citizens' purchasing powers was then conducted. Using the calculations and simulations, it was concluded that the government investment scenarios provided the lowest GPs but burdened the state budget. The business investment scenarios provided high GPs and benefitted the firm but not the community. The mixed investment scenario with 50:50 government and business entity investment composition was recommended for setting GPs; they increased investments and public welfare, could be just and fair, and could meet citizens' purchasing powers.

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Weighted Average Cost of Retail Gas (WACORG) highlights pricing effects in the US gas value chain: Do we need wellhead price-floor regulation to bail out the unconventional gas industry?

Cited by 11 publications

References 16 publications

Natural Resource Wealth Optimization: A Review of Fiscal Regimes and Equitable Agreements for Petroleum and Mineral Extraction Projects

Natural Resource Wealth Optimization: A Review of Fiscal Regimes and Equitable Agreements for Petroleum and Mineral Extraction Projects

Energy (in)security in Poland the case of shale gas

The Impacts of Financing Investment Scenarios on Piped-Natural Gas Prices (GPs) for Households in Indonesia

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